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World Trade Organization

WTO is international trade agreement which replaced GATT (General Agreement on Tariffs and Trade, which was established in 1948) in 1995. Currently it has 162 members and comprehensive trade treaty is being negotiated among them. This disparate group of countries are split along their economic status and developmental needs which has lead to grid-locking of WTO talks and rise of plurilateral deals like TPP.

WTO Member State Image Source:wikipedia

The WTO deals with regulation of trade between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986–1994).

The WTO currently faces existential threat for two reasons: the post-Nairobi work programme has very few substantive issues that can meaningfully engage its 162 members, and, more importantly, the Doha Development Agenda (DDA), that has been the lifeline of the WTO for nearly a decade and a half, now faces the imminent threat of closure.

Functions of WTO

WTO has various functions, these most important of them are:

It oversees the implementation, administration and operation of the covered agreements.

It provides a forum for negotiations and for settling disputes.

India recently lost appeal by US against India’s quota of domestic requirements for solar panels as discriminatory hence India had to suitably change its policy

India too had numerous victory against US regarding dumping duty imposed by US on products from India like shrimp

Reviews and propagate the national trade policies, and to ensure the coherence and transparency of trade policies through surveillance in global economic policy-making.

WTO assists developing, least-developed and low-income countries in transition to adjust to WTO rules and disciplines through technical cooperation and training.

Criticisms of WTO

WTO is criticised on many accounts. Biggest charge its critics lay to its door is while trade helps developed nations but Least Developed Nations (LDCs) and developing nations are hurt by this mercantilism as they cannot compete with developed nations in terms of technology hence superior products. Moreover the backwardness of LDCs and developing nations is largely due to developed nations who colonized them for better part of century and ruined their indigenous economy and industry.

Other criticisms of WTO are

AoA allows unlimited subsidies under ‘Green Box’ which are of direct nature and comprises of subsidy like insurance etc which are not considered market distorting, while subsidies provided by developing nations which are of indirect nature are considered market distorting and are limited to 10% of farm produce.

For example US provides huge $160 billion of subsidy to its farmers, similarly other developed countries also provide huge subsidy to their farming sector.

Another problem is farm produce is valued at price level determined in 1987-88 while subsidies which are given at current market prices makes the impact of ‘Amber box’ subsidy balloon disproportionately

LDCs and developing nations exports are mostly farm products which are threatened by this subsidy moreover due to subsidy developed nations farmers would outmuscle developing countries and LDCs farmers from world marketplace and even their own market. Indigenous markets now being open under WTO with limit on tariffs and non-tariff barriers exposed farmers from LDCs and developing nations to the vagaries of world marketplace which is not always pleasant.

LDCs and developing nations forced to amend their Intellectual Property regime hence now their markets open to rent seeking by MNCs through their greater repertoire of patents

India amended its patent law in 2005. under which now it recognizes product patents earlier it recognized only process patents. This liberal patent regime enabled growth of generic pharma companies in India whose role in containing AIDS epidemic in Africa is widely recognized. However global pharma companies are still not happy with patent regime of India and allege Article 3(d) which recognizes only novel drugs having better therapeutic effect is against western standards. Moreover compulsory license to manufacture drug in event of epidemic is also resented.

Developing and LDCs allege while WTO would liberalize the trade in goods and services but no concomitant agreement is in offing which allows economic migrants. Hence the fruits of globalization would be disproportionately enjoyed by western countries citizens.

The Doha agenda

Doha Development Round begun in 2001 and had an ambitious agenda of ushering in equitable trade regime which would bring economic parity to LDCs and developing countries, a trading system, one which would provide the opportunities to laggards in the global trading system to benefit from engaging in trade. DDA begun with a huge agenda covering agriculture, industry, services, trade facilitation and the special needs of the Least Developed Countries. In agriculture, it was to address market access, tariffs, and subsidies.

It was agreed that agriculture would be stripped of all policy distortions, including the unacceptably high levels of subsidies that provide unfair advantage to the large conglomerates controlling global trade in commodities. At the same time, it was decided that the existing Agreement on Agriculture (AoA) would be amended to address smallholder agriculture and give developing countries new instruments to address concerns regarding food security, protection of rural livelihoods and rural development. The understanding therefore was that the trade regime would prevent the occurrence of a situation where small farmers in developing countries are pitted against the powerful commercial interests.

It was also agreed, in the same vein, that developing countries would be able to enjoy flexibility while reducing tariffs in both agriculture and industry, so as to ensure that these enterprises are prevented from facing competitive pressures before they are adequately prepared to do so. And, finally, in the area of services, most developing countries, including India, have been seeking ways to improve their presence in the global services markets, especially through cross-border trade in services and through movement of natural persons (the so-called Modes 1 and 4 respectively).

In industry, there was the issue of market access and tariffs. Negotiations dragged on at the WTO’s Geneva headquarters and at ministerial meeting after ministerial meeting as countries found it difficult to digest this ambitious agenda. A semblance of a balanced outcome—especially in agriculture—which gave some meaning to the DDA, was available in 2008 when a package of “draft modalities” was drawn up; but the US killed the package when it found it would hurt its powerful farm lobby. After that it has been all downhill until the Nairobi wreck.

The Nairobi distortion

Disturbing sign for the DDA is that the WTO members did not unanimously support its continuance. The effective abandonment of the Doha Round will once again raise the two-decade-old question of whether developing countries should walk out of the WTO. The argument against doing so is that the South is better off in a multilateral trade organisation, which, unlike the World Bank and International Monetary Fund, is governed by a one country–one voice system. Indeed, the South was earlier successful at the WTO in slowing the juggernaut of the North, which seemed triumphant after the lopsided Uruguay Round agreement. But bit by bit the North chipped away at alliances of the South and bit by bit it grabbed what was of mercantile interest.

Dangers of Pluralilateral trading agreements

Meanwhile, regional trade agreements with their punitive WTO+ clauses acted as pincers on the WTO negotiations leading to the current sorry state of the South, especially one of its leading voices, India. TPP has been negotiated between US and 11 other Asia-Pacific countries and whose trade account for 40% of world trade. Other expansive trade deals like TTIP, RCEP are under negotiations which would further tear down the equitable agenda of Doha Development Round.

TPP allows the large rent-seekers in the international markets, the transnational corporations, to earn unacceptably high rents through the exercise of the extraordinary rights they have been promised for their intellectual property and their investments. These transnational corporations are already making several countries pay very high prices for the products based on their intellectual property, including those of life-saving drugs, something that has been viewed with concern even in their home countries. At the same time, an increasing number of these corporations have successfully brought cases against their host countries before international arbitration panels when the latter have tried to bring domestic regulations to check flagrant violation of norms.

Increasing bilateral free-trade agreements whose numbers has increased to over 600 agreements in 2015. A significant amount of India’s own negotiating capital and focus has been on the mega-regional RCEP agreement, and on bilateral free-trade agreements; but neither approach is a substitute for the WTO and its strong edifice of a multilateral system of rules, backed by an effective dispute-settlement mechanism.

With the WTO facing the imminent danger of being taken over by a grossly unjust and undemocratic governance structure that would be dominated by the powerful interests, India and other developing countries need to seriously consider the contours of their future engagement with this organisation. More specifically, they must find ways of bringing back centre stage in the WTO negotiations the issues that would help their farmers and the workers in the manufacturing and services sectors get decent jobs and to put their economies on the path of sustainable development.